BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 929| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: AB 929 Author: Wieckowski (D) Amended: 3/31/11 in Assembly Vote: 21 SENATE JUDICIARY COMMITTEE : 3-2, 6/14/11 AYES: Evans, Corbett, Leno NOES: Harman, Blakeslee SENATE APPROPRIATIONS COMMITTEE : 6-3, 8/25/11 AYES: Kehoe, Alquist, Lieu, Pavley, Price, Steinberg NOES: Walters, Emmerson, Runner ASSEMBLY FLOOR : 54-21, 5/19/11 - See last page for vote SUBJECT : Debtor exemptions: bankruptcy SOURCE : Author DIGEST : This bill revises and expands the set of specific asset exemptions available to bankruptcy debtors (the 703 exemptions) to generally conform to the exemptions under existing law available to all debtors in California seeking to exempt specified property from enforcement of a monetary judgment (the "704 exemptions"). The bill significantly increases the homestead exemption that is available to all judgment debtors. ANALYSIS : Existing law provides that in a case under CONTINUED AB 929 Page 2 Title 11 of the United States Code (relating to bankruptcy), all of the exemptions, other than the Section 703.140(b) exemptions, are applicable regardless of whether there is a money judgment against the debtor or whether a money judgment is being enforced by execution sale or any other procedure. The Section 703.140(b) exemptions may be elected in lieu of all other available exemptions, as specified. (Code of Civil Procedure Section 703.140 (a).) Existing law, the 703 exemptions, provide for eleven categories of exemptions, modeled after federal law, which the bankruptcy debtor may elect to use in lieu of the 704 exemptions. Those exemptions include: The debtor's aggregate interest, not to exceed $17,425 in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence, in a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence, or in a burial plot for the debtor or a dependent of the debtor. The debtor's interest, not to exceed $2,775 in value, in one motor vehicle. The debtor's interest, not to exceed $450 in value in any particular item, in household furnishings, household goods, wearing apparel, appliances, books, animals, crops, or musical instruments, that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor. The debtor's aggregate interest, not to exceed $1,150 in value, in jewelry held primarily for the personal, family, or household use of the debtor or a dependent of the debtor. The debtor's aggregate interest, not to exceed $1,750 in value, in any implements, professional books, or tools of the trade of the debtor or the trade of a dependent of the debtor. (Code of Civil Procedure Section 703.140(b).) Existing law, the 704 exemptions, specify 21 different types of property and the conditions under and amount of AB 929 Page 3 which a debtor may claim an exemption from enforcement of a money judgment. (Code of Civil Procedure Sections 704.010 through 704.210.) Existing law requires the Judicial Council to adjust the above dollar amounts at every three-year interval ending on April 1 thereafter, as specified, based on the change in the annual California Consumer Price Index for All Urban Consumers, as specified. (Code of Civil Procedure Section 703.150.) This bill revises and recast the following 703 exemptions so that the exemption's language generally mirrors the corresponding 704 exemption: The exemption for household furnishings, household goods, wearing apparel, appliances, books, animals, crops, or musical instruments. The exemption for unmatured life insurance contracts. The exemption for a cause of action for wrongful death, or an award of damages or a settlement rising out of wrongful death. The exemption for a cause of action for personal injury, or an award of damages or a settlement rising out of personal injury. The exemption for unemployment compensation payments. The exemption for a cemetery plot for the debtor and the spouse of the debtor. This bill revises and recast the following Section 703 exemptions so that they mirror corresponding Section 704 exemptions for specified property, but with an increase in the dollar amount of the exemption: The exemption for the debtor's interest in a motor vehicle or vehicles, not to exceed $4,800 (an increase from $2,775 for a single vehicle). The exemption for the debtor's aggregate interest in AB 929 Page 4 jewelry, heirlooms, and works of art, not to exceed $5,000 (an increase from $1,150 for jewelry only). The exemption for the debtor's aggregate interest in tools, implements, instruments, materials, uniforms, equipment, one commercial motor vehicle, and other personal property (i.e. "tools of the trade") reasonably necessary to and actually used by the debtor or the debtor's spouse in the exercise of their respective professions, not to exceed $6,075 (an increase from $1,750 for tools of the trade, excluding any vehicles). This bill adds the following additional exemptions to Section 703 that mirror corresponding Section 704 exemptions for the following property: (1) workers' compensation benefits; (2) public aid or similar aid provided by a charitable organization; (3) relocation benefits for displacement from a dwelling, as specified; (4) financial aid for higher education; (5) public retirement benefits; (6) vacation credits; and (7) service of earnings assignment orders for support, as specified. Existing law, the California Constitution, requires the Legislature to protect, by law, a certain portion of the homestead and other property, from forced sale. (California Constitution Article XX Sec. 1.5.) Existing law contains both an automatic and a declared homestead exemption that serve to protect a portion of equity in a debtor's home from creditors. (Code of Civil Procedures Sections 704.710 et seq., 704.910 et seq.) Existing law states that the automatic homestead exemption applies to the principal dwelling in which the judgment debtor, or spouse, continuously resided from the date of attachment of the judgment creditor's lien until a court determination that the dwelling is a homestead. (Code of Civil Procedure Section 704.710.) A declared homestead exemption applies, as specified, to a dwelling specified in a recorded homestead declaration. (Code of Civil Procedures Sections 704.910, 704.920.) Existing law sets the amount of the homestead exemption as follows: $75,000, unless the judgment debtor or spouse of the AB 929 Page 5 judgment debtor who resides in the homestead is a person described below; $100,000 if the judgment debtor or spouse of the judgment debtor who resides in the homestead at the time of sale is a member of the family unit, and there is at least one member of the family unit who owns no interest in the homestead or whose only interest in the homestead is a community property interest with the judgment debtor; or $175,000 if the judgment debtor or spouse of the judgment debtor who resides in the homestead at the time of sale is either: (1) a person 65 years of age or older; (2) a person physically or mentally disabled and as a result of that disability is unable to engage in substantial gainful employment, as specified; or (3) a person 55 years of age or older with a limited gross annual income, as specified. (Code of Civil Procedure Section 704.730.) Existing law requires the Judicial Council, on April 1, 2013, and at each three-year interval thereafter, to submit to the Legislature the amount by which the dollar amounts of the above homestead exemptions may be increased based on the change in the annual California Consumer Price Index for All Urban Consumers. Those increases shall not take effect unless they are approved by the Legislature. (Code of Civil Procedure Section 703.150(c).) This bill increases those exemptions to $150,000, $250,000, and $350,000 respectively. This bill, with respect to the third exemption, increases the qualifying gross income for a person 55 years of age or older from not more than $15,000 to $22,000, and, if married, from not more than $20,000 to $29,000. Comments In a bankruptcy action, exemptions generally allow a person to protect certain types of assets during the bankruptcy process. If an asset is exempt, the asset can generally not be taken to pay creditor's claims. The concept behind exemptions is to provide an individual with a minimum amount of property and money that can be used to give AB 929 Page 6 him/her a "fresh start." Individuals filing bankruptcy in California can choose between two different sets of exemptions: the 703 exemptions or the 704 exemptions. The "703 exemptions," located in Code of Civil Procedure Section 703.140(b), consist of eleven categories that are modeled after federal bankruptcy law. Those exceptions include a "wildcard" exemption of up to $23,250 (consisting of $1,175 plus the unused portion of the $22,075 homestead exemption) that may be applied to any property. That application is important for those individuals who have little or no equity in a home. In comparison, the "704 exemptions," contained in Code of Civil Procedure Sections 704.010 through 704.210, provide 21 different types of exemptions that protect a wider range of property but do not include a "wildcard" exemption to cover unlisted property. The homestead exemption is also significantly greater, providing a base exemption of $75,000, $100,000 for married individuals, and $175,000 for seniors and disabled individuals, as specified. It should also be noted that the 703 exemptions are specific exemptions that a bankruptcy debtor may elect in lieu of all other exemptions while the 704 exemptions are available to all debtors in California seeking to exempt specified property from enforcement of a money judgment. This bill revises, recasts, and expands the set of 703 exemptions to more closely resemble the 704 exemptions. This bill also increases the amounts of exemptions for the debtor's motor vehicle, "tools of the trade," and increase the 704 homestead exemption that is available to all judgment debtors, whether in bankruptcy or not. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No According to the Senate Appropriations Committee: Fiscal Impact (in thousands) Major Provisions 2011-12 2012-13 2013-14 Fund Delayed FTB tax $1,100 $1,500$1,400 General collection* AB 929 Page 7 Debt collection costs Unknown; dependent on the length of General time required to receive full payment Update homestead Minor, absorbable costs to Judicial General** exemption rates Council to update and post rates on their Web site *Delayed tax collections of $200 in 2010-11 (for revenue accrued back one year) **Trial Court Trust Fund SUPPORT : (Verified 8/22/11) California Labor Federation Central California Legal Services Peace Officers Research Association of California OPPOSITION : (Verified 8/22/11) California Bankers Association National Association of Bankruptcy Trustees ARGUMENTS IN SUPPORT : According to the author's office, over the past few years of severe recession, Californians have been increasingly forced to resort to bankruptcy. Current exemptions under bankruptcy can leave debtors with little left to start their lives over again. The exemptions for tools of the trade, home equity, and automobiles are currently insufficient. This bill creates a more fair structure between debtors' exemption options under bankruptcy. In particular, when homeowners are at risk of losing their homes, the exemptions should take into consideration the current home values. Permitting debtors to both stay in their homes and to keep such essential items as tools of their trade and an automobile will allow Californians to retain sufficient assets in order to get back on their feet, get back to work, and recover from financial insolvency AB 929 Page 8 ARGUMENTS IN OPPOSITION : The California Bankers Association opposes this bill and writes, "This bill relating to bankruptcy exemptions, unless it is amended to remove the dramatic increases to the homestead exemptions. These exemptions were significantly increased on January 1, 2010; however your measure doubles these recently enacted exemption levels. In addition, these increases are unnecessary and circumvent a report from the Judicial Counsel regarding a consumer price index recommended change due by April 2013. "In January 2010, California increased its homestead exemption from $50,000 to $75,000 for a single person; $75,000 to $100,000 for a family unit; and from $150,000 to $175,000 for seniors and the disabled. Those increases were accompanied by a mechanism for review every three years by the Judicial Council of the homestead exemption for increases due to inflation. The Judicial Council is currently scheduled to provide its first review in April 2013. This bill circumvents this new statutory system by doubling the recently increased homestead exemptions to $150,000 for a single person, $250,000 for a family unit, and $350,000 for seniors and the disabled. In 2010, only three percent of all Chapter 7 cases filed identified assets exceeding allowable exemptions, thereby permitting bankruptcy trustees to compensate unsecured creditors. The doubling of the homestead exemption proposed in AB 929 dramatically extends bankruptcy exemptions, shielding hundreds of thousands in assets from recovery by creditors. Unsecured creditors that will be negatively impacted by the proposed doubling of the homestead exemption include not only unsecured lenders, but also the State of California, small business, medical providers, contractors, and other entities that expect payment from the debtor. For example, in 2010 California bankruptcy trustees made priority claim payments under Chapter 7 asset cases to the California Franchise Tax Board of approximately $37.5 million and $12.4 million to the State Board of Equalization. While most taxes are not dischargeable under bankruptcy law, the proposed doubling of the homestead exemption in this bill impedes and delays the collection of these tax debts to the state, imposing significant General Fund pressures." AB 929 Page 9 ASSEMBLY FLOOR : AYES: Allen, Ammiano, Atkins, Beall, Bill Berryhill, Block, Blumenfield, Bonilla, Bradford, Brownley, Buchanan, Butler, Charles Calderon, Campos, Carter, Cedillo, Chesbro, Cook, Davis, Dickinson, Eng, Feuer, Fong, Fuentes, Galgiani, Gordon, Hall, Hayashi, Roger Hernández, Hill, Huber, Hueso, Huffman, Jones, Lara, Bonnie Lowenthal, Mendoza, Miller, Mitchell, Monning, Pan, Perea, V. Manuel Pérez, Portantino, Skinner, Smyth, Solorio, Swanson, Torres, Wagner, Wieckowski, Williams, Yamada, John A. Pérez NOES: Achadjian, Conway, Donnelly, Fletcher, Beth Gaines, Garrick, Gatto, Grove, Halderman, Harkey, Jeffries, Knight, Logue, Mansoor, Morrell, Nestande, Nielsen, Norby, Olsen, Silva, Valadao NO VOTE RECORDED: Alejo, Furutani, Gorell, Hagman, Ma RJG:do 8/29/11 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END ****